Striving for growth doesn’t necessarily mean becoming a multi-national corporation. Your growth plan may simply be a strategy for staying profitable for as long as you want to run your business.
Acquiring another company is one of the simplest ways to do this. Purchasing a company can be a smart move if you understand the industry, you’ve done your due diligence, and you have the funds available.
Whether it’s buying out the competition, a supplier, or a customer, consider whether a strategic purchase is right for you.
Buy a competitor
This is the most common type of acquisition – and it’s easy to see why it has appeal.
You’ll get access to your competitor’s customer base, staff, location, and any supplier contacts or contracts. Odds are your competitor has unique strengths that your business can benefit from. You’ll be able to open up to new and diverse markets as you add more value for your customers.
And, because you already know the industry, acquiring a competing business should be a safe investment if everything checks out once the due diligence is complete.
Buy a customer
If you sell your products or services to other businesses, take a look at your clients to spot growth potential.
By purchasing one of your customers, you’ll be able to make decisions that directly benefit your business. For example, you’ll gain control over how much stock your customer’s company buys from you. And you can decide who else they buy stock from, ending relationships with your competitors.
Look for a well-run operation that will make for an easy transition. If you can retain management and staff, and keep operations running smoothly, you’ll be able to focus on leading your acquisition to new profitable directions.
Buy a supplier
At times, buying a supplier can be an effective growth tactic if they’re a critical part of your success. You’ll be able to stabilize your supply, enjoy lower input costs, and control any sales to other similar businesses.
One of the drawbacks with this arrangement is that you may need time to develop some new skill sets if you don’t have experience with the supplier’s business. Include a clause in your purchase agreement that you’ll retain their managers and receive training in the beginning to ensure a smooth transition.
If you’re keen to grow your business by acquisition, it’s a good time to look at the options. Companies owned by retiring baby boomers in Canada are increasingly available on the market. Start your research early as it can take between six months and a year just to find the right opportunity. You’ll also want to take your time when closing the deal.
Before you take action on any of the information above, we recommend consulting with a qualified business advisor that understands your unique needs and situation for your specific business and/or personal plans.